Spot gold extended its gains on Tuesday, edging lower after hitting as high as $1,875.23 an ounce and breaking through the $1,860 mark, with bulls now looking toward the $1,870 mark. The weakness in real yields, so important to gold, which have been negative recently and barely moved during the recent brief rise in nominal yields, has kept gold’s floor support firmly in place. What needs to be watched now is the fiscal stimulus negotiations in the U.S. Congress, and the size and timing of the aid will be key to the next move in gold prices.
Geopolitical risks continue to weigh on gold prices as investors remain nervous about developments in the Brexit negotiations. A conference call between Boris Johnson, the British prime minister, and Von der Leyen, the President of the European Commission, was fruitless yesterday. He said today that while he hoped to reach a deal, it would be “very difficult” to reach a deal before Thursday’s eu Council summit in Brussels. But later The British Cabinet office minister Gove said he was pleased to announce that agreement in principle had been reached on all issues in the joint Commission on Britain and the EU’s brexit agreement.
Now watch for Johnson’s meeting with Von der Leyen on Wednesday or Thursday. If the two sides can reach an agreement before an EU summit on Thursday, they will be able to ratify it at the summit, allowing Britain to leave the EU smoothly after the end of the transition period on December 31.
On the vaccine front, this week’s FDA review of Pfizer’s vaccine follows a report from staff members that Pfizer and partner BioNTech’s COVID-19 vaccine met the agency’s guidance expectations enough to warrant a review. This means that, barring any surprises, Pfizer’s vaccine will pass muster, allowing it to be distributed in the United States as quickly as possible.
On the other hand, what gold investors can’t ignore right now is the threat and challenge from Bitcoin. Bitcoin’s rally accelerated last month, with the cryptocurrency hitting a record high of $19,950 on November 30. This partly explains why ETF demand for gold fell sharply in November, despite continued safe-haven demand.
Heng Koon How, head of market strategy at UOB, and Quek Ser Leang, market strategist, wrote in a note on Monday: “Strong redemptions have replaced strong inflows, with about 4 million ounces of gold flowing out of etfs in November. Drying up demand for gold etfs was seen as a key reason for gold’s weakness in November.”
In addition to bitcoin making gold less attractive, central banks have suspended gold purchases over the past few months, adding to the loss of sentiment.
Technically, gold broke through the key resistance area of 1845-1860 on the daily chart yesterday, which is made up of the 20-day moving average and support for September and October, so this breakout could open the door to 1900. And if the short – term callback, 1845-1860 area has been converted into support, as long as the fall does not break the 20 average 1845 will maintain the bullish outlook.
Colin Cieszynski, chief market strategist at SIA Wealth Management in Washington, said the near-term outlook for gold remains positive as a new round of U.S. stimulus looms. “Us politicians are under pressure to launch new projects to avoid a government shutdown, which is positive for gold.”
But Commerzbank precious metals analyst Carsten Fritsch noted in a recent report that the near-term outlook for gold is in turmoil, with the U.S. Commodity Futures Trading Commission’s report showing that gold is struggling to attract significant speculative interest as the dollar languishes near three-year lows.